Michael Roberts has also written up a post on the San Francisco summit and has also found it wanting, and gives us some extra analysis of the current state of China's economy for free.

This was the only second face-to-face meeting during the Biden presidency. It seems the aim was to clarify just how close the US and China are to conflict over Taiwan and other security issues, as well as trying to establish some semblance of trade progress after years of US moves to reduce China’s rise in hi tech and other products (EVs) that threaten US hegemony. Indeed, Xi was also meeting US business leaders to try and reassure them that they can invest in China, despite recent moves by the Chinese CP leaders to tighten controls on the capitalist sector.

It does not appear much came out of the meeting apart from agreeing not to attack each other ‘by mistake’. But while the leaders ‘talked turkey’, the economic reality is that US efforts to strangle the Chinese economy are not working. Western ‘experts’ continue their never-ending message that China is close to a debt collapse; China’s property market is imploding; and above all, China’s previous phenomenal growth is now over and the economy since COVID is grinding to a halt and will end up like Japan, stagnating in a sea of debt.

If this were really so, then Biden and American capital would have nothing to worry about – but they do worry and rightly so. Yes, China’s property bubble has burst and some very large private sector property developers are going bust. In previous posts, I have argued that it was a big mistake by the Chinese CP leaders to adopt the Western capitalist model for urban development. Instead of putting housing construction into the public sector to build homes at reasonable rents for the hundreds of millions of Chinese who have moved into the cities to work, the government allowed private developers (with billionaire owners) to do the job and now the result is a classic debt-driven bubble that has burst.

And yes, overall debt in the capitalist sector has rocketed. Now the government will be forced to liquidate many of these developers and/or ‘restructure’ their operations with state money. But this does not mean China is about to have deflationary crash. China’s net debt to GDP ratio (debt burden) is only 12% of the average in the G7 economies. The state holds huge financial assets; so it can easily manage this property slump.

The government has just announced that its new Central Financial Commission will take over from the People’s Bank and the existing financial regulator, the control of China’s financial private sector. The ‘Western experts’ decry this move because they think the market can better allocate investment than the state. “The temptation to intervene in capital and credit allocation, whether arising from risk or management failure, or from political directive, is likely to be elevated,” said perennial China sceptic, George Magnus. He added. “These features do not augur well for China’s financial stability or economic prospects.”

The point is that the Xi leadership no longer trust the Western-educated economists in the People’s Bank to regulate the private sector – the bank is a fortress of neo-classical pro-market economics. The bank’s economists would support Magnus’ approach to free up the finance sector – something so successful in Western economies! But the CP leaders still stop short of bringing these speculative financial and real estate speculators into public ownership (no doubt some leaders have personal links). Until they do, financial speculation will continue to distort the economy much more than any arbitrary policies of the party leaders.

The Chinese economy is not diving into a recession. The IMF has just forecast that China’s real GDP will rise by 5.4% this year – and that’s an upgrade from its previous forecast. The housing market may be struggling, but productive industrial construction is booming. China has already built enough solar panel factories to meet all demand in the world. It has built enough auto factories to make every car sold in China, Europe and the US. By the end of next year, it will have built in just five years as many petrochemical factories that Europe and the rest of Asia have now.

And take hi-speed rail and infrastructure projects. Back in the US, Biden makes much of his infrastructure program after decades of decline and neglect in US transportation facilities. But that’s nothing to the rapid expansion of hi-speed rail and other transport projects that now have linked up the vast expanse of China’s regions. Compare this to the state of infrastructure in the San Francisco area as Xi visits.

Ah, but you see, China’s economy is seriously ‘imbalanced’. There is ‘too much’ investment in such projects and not enough handouts to the people to spend on consumer goods like I-phones or services like tourism and restaurants. China cannot grow any more unless it switches households from saving to spending and investment to consumption. The old state-led investment and export model is dying. China will now end up like Japan, stagnating with near zero growth and a falling population. I have pointed out the nonsense of this view on several occasions. China’s growth has been based on a high rate of productive investment – at least until the unproductive capitalist property development sector came overloaded with debt.

But high investment does not mean low consumption growth – on the contrary, investment leads to more production, more jobs and then more incomes and consumption. China’s supposedly low consumption ratio to GDP compared to the highly successful Western capitalist economies is accompanied by a much faster growth in household spending. Indeed, retail sales rose 7.6% yoy in October – not suggesting an entirely weak consumer. China’s workers may not have any say in what their government does, but nevertheless, their wages are still rising faster than anywhere else in Asia.

And those wage rises are not being eaten away by inflation as has happened in the last few years in the rest of the G20 economies. China’s inflation rate is near zero while inflation, despite recent falls, in the US and Europe is several times higher – indeed US workers have seen prices rise by 17% since COVID.

The Western mainstream economists proclaim China’s ‘disappointing’ economic slowdown (real GDP growth 5.4% and forecast 4.5% next year), but they say little about Japan. Japan is dropping into stagnation and even slump. In Q3 2203, real GDP fell 2.1% at an annualised rate (the measure US economists use to bolster the US rate); consumer spending is stagnating and business investment’s decline is accelerating. Japan is joining much of the Eurozone, the UK, Canada, Sweden, New Zealand etc in contraction this coming year.

And if Biden is hoping that the upcoming presidential election in Taiwan will lead to a victory for the pro-independence candidate from the Democrat party, then he could be in for a surprise. It seems that the two anti-independence, pro-China parties, the Kuomintang and People’s Party, are planning to run a single candidate for the presidency and current polls show that such a candidate would win. So that could mean a pro-China president in Taiwan next year.

Then, there is the vexed question, which neither side would dare discuss publicly — namely, China has begun to sell its vast holdings of US Treasury bonds. The damage a Chinese selloff could do to financial markets, to Washington’s finances, and to the economy generally needs no explanation. For decades, the US was a major consumer but since Americans were running a trade deficit, they needed to borrow to support the purchase of Chinese imports and Beijing advanced that loan indirectly through its purchases of US Treasury bonds. But the matrix has changed. As it is, the demand for US bonds is not high, by any means — in fact, one of the most enthusiastic buyers of US bonds is the US Federal Reserve. This has been compared to something like having your own bakery and buying up most of your unsold bread at the end of the day so that a negative opinion of your sales does not form. The fact that Treasury Secretary Janet Yellen appeared in the front and centre of US-China relations is a signpost.

I just want to clarify this part because so many people from the left is still missing the point here.

The US government does not need to borrow from other countries to finance its spending. Other countries lend to the US because they don’t know what to do with their dollar surplus. This is a very important distinction to make because an incorrect understanding will lead to the wrong conclusion.

I highly recommend listening to this episode of RP Live interview with Michael Hudson:

Well, when laypeople, and when your audience goes to the bank, and they put a deposit in their savings account or their checking account, they don’t say “the bank is borrowing from me.” They think of themselves as saving. The United States doesn’t have to borrow a penny from foreign countries in euros or yen or pesos or any other currency.

But it does have a very different problem that has nothing to do with borrowing. The United States is running a huge balance of payments deficit. And since the Korean War, 1950, almost the entire balance of payments deficit has been military in character. So what happens is the United States spends these dollars abroad, throughout its 800 bases throughout the world.

These bases, all this costs money and they have to buy, they have to spend it locally. And the local recipients of this money, take the dollars and they remit them to their head offices in France or Germany or Japan or China. And the central banks of these countries say, ‘what are we going to do with all these dollar payments?’

Well there’s very little that they can do with them. And so the only thing they can do to keep safe with these payments is to deposit them in the United States. But they don’t want to deposit them in commercial banks because they could put it in Silicon Valley Bank and just be wiped out. So what they do is, they spend their dollars and their international financial reserves by buying Treasury bonds or Treasury bills.

And so the United States has to provide a vehicle for these countries to save all of the surplus dollars that the United States spends militarily. So the United States acts as a savings bank for foreign central banks that receive more dollars than they spend. And the active factor in all this is the US deficit pumps dollars into the economy, the dollars have to come back to the United States, and the United States accepts them as a deposit. And the deposit is a US Treasury obligation that’s held by them.

So it’s not that the US Treasury says “We have to go out and borrow money from you guys.” The problem is that these guys say, “Well, we have a surplus of dollars, we don’t want the dollars because we think you’re crooks. We’ve seen you just grab all of Russia’s savings. We’ve seen you tell England ‘grab all of Venezuela’s gold.’ You guys are pirates. We don’t want to hold dollars anymore. We want to de-dollarize.”

So, what they’re doing is winding down their dollar deposits here. They don’t want to hold their dollars in the United States because President Biden says, “the ‘yellow peril’ is our number one enemy.” So China says, “Well, if we’re their number one enemy, and he says it again and again and again, week after week, then they’re going to treat us like they treat Russia. We’d better get all our money out of the United States. We’d better de-dollarize, and we’d better work with Russia, Iran, and the BRICS countries to have some alternative way so that we don’t have to use the United States as a savings bank for these garbage dollars, they put military bases around us, where they say they’re going to bomb us if we don’t follow policies that President Biden’s advisors support.”

So, instead of borrowing from them, they’re trying to decouple, they’re trying to de-dollarize. The world is dividing into really two parts. The United States and Europe, which the head of the European Union, Borrell, calls “the garden.” And there’s the rest of the world, which he calls “the jungle.” Which shows the kind of racist character that the Anglo-Saxon and the white population has toward the global majority. Which is the term that President Putin and others have been using for the majority of people.

So anyway, I’ve diverged a little bit but we don’t borrow, other people have used us as a bank. Just as when you go to a bank, put money in your savings deposit, the bank doesn’t borrow from you, you’re lending money to the bank. Other countries are lending money to the United States.

Hudson is saying that the main threat to the US is not that the US has to borrow from other countries, but that other countries have now realized the necessity to de-couple and de-dollarize. However the success of this de-dollarization effort is predicated upon these other countries knowing how to do it properly.

So long as the BRI and BRICS NDB loans continue to be given out in dollar, all the talks about reducing US treasury holding is useless because the Fed can always purchase them - as Hudson said, it’s simply a vehicle to absorb the excess dollar spent overseas. If you don’t want to buy our treasuries, no big deal.

Debt cancellation is a big deal because it frees up the countries from having to earn dollars to repay their debt, one that will truly blunt the financial arm of US imperialism.

Hope this clarifies the matter to those who are still confused about how dollar hegemony works.

At San Francisco summit, neither side gave away anything at all. Xi asserted that no matter what US does, reunification of Taiwan is “inevitable.” Xi proposed “peaceful co-existence”, the chosen way of life between the Soviet Union and America, but Biden insisted that “the United States and China are in competition” and that the US “will always stand up for its interests, its values, and its allies and partners.”

If Beijing hoped for a return to the “Bali spirit,” Washington won’t even acknowledge any such thing. The US apparently has no recollection of Biden giving any such “five noes” assurances. The White House readout of the San Francisco meeting does not mention these assurances, either. Clearly, there are substantial gaps in strategic perception and mutual understanding. And there is reason to doubt whether any real negotiations took place at all during the 4 hours of conversation.

A close study of the two readouts — and the media reports later — gives the impression that primarily, Biden was grandstanding before his domestic political audience while Xi spoke with an eye on the global audience.

Mercouris pointed out the same thing on the 18th starts here and he was quoting another article. I think he does a better job actualy explaining this specific point. BTW I always watch at 2x speed. I'll put a half auto transcript below of that part.

What the author of this article found is that the the Chinese readout of the Bali meeting refers to the "five no", no new Cold War not seeking to change China's system not seeking to revitalize alliances against China no support for Taiwan Independence, no intention to have a conflict with China.

Though the Chinese talk about these "five nos", the American readout of the Bali meeting doesn't actually properly speaking refer to them and the Chinese readout of the San Francisco meeting talks about President Biden once again pledging his commitment to the "five nos" of the Bali meeting and as the national interest article says the Chinese are talking about this meeting in San Francisco being essentially an attempt to put things back on track.

The author of this article points out that yet again the American readout shows no sign of Biden doing what the Chinese say he did, it talks about entirely different things, the American readouts talk about the same old cliches reaffirming America's commitments to its values all those kind of thing.

The author of the article makes the absolutely valid and correct point that what this means is that the Chinese coming away from this meeting with Biden in San Francisco are saying one thing and the Americans are saying something completely different and that tells us that there has been no substantive meeting of the minds about anything and though it is a fact fact that this meeting went on for 4 hours.

can't help but wonder if replacing li shangfu had anything to do with military communication channels opening back up

probably would be my guess, but also probably not in the most expected of ways